Dishonour of Cheque

 

Name – Harsha Manish Musale

College - Central India College of Law

Cheque is a negotiable instrument. Cheque is defined under section 6 of Negotiable Instrument Act, 1881. Cheque is used to give money instantly with the belief that the drawer has money in his account. An account of which drawer has drawn the cheque.

Cheque comes into the picture or you can say cheque is introduced to improve the speed of bill of exchange, business transaction, commerce .Wherever the person has to pay a lump sum amount, cheque is the safest way to pay lump sum     money because of which business grows. People need not carry money. When people used to carry money for business purposes from one place to another at that time people were afraid of theft that thieves would steal their money, such incidents happened because of which people have to bear loss.

Dishonour of cheque means when the cheque is  given to the payee by the drawer to draw it from the drawers bank and its get unpaid or payee’s bank get the return memo from the drawers bank that cheque is not paid for the reason of insufficient amount in the drawers account or for other reasons then cheque is dishonoured. In such a situation payee has to give  legal notice to the drawer stating all the facts regarding dishonor of cheque and intimate the drawer that if he will not pay the cheque amount within 30 days of receiving of legal notice then he will have to bear legal consequences.

REASONS OF DISHONOUR OF CHEQUE

1. Insufficient fund

2. Signature not matching

3. Overwriting

4. Account closed

5. Account holder is insane

6. Damaged cheque

7. Amount is not matched with figure and word

8. Account number mismatch

9.        Seal of the company is not on the cheque

 

INSUFFICIENT FUND – When the drawer draws the cheque to the payee , the drawer should keep the sufficient amount in his account to avoid the consequences of dishonor of cheque. It is a commonly found reason for dishonour of cheque.

SIGNATURE NOT MATCHING – Signature of the drawer should match with the signature of the drawers that he or she has done while submitting the account opening form. Banker will verify the signature and if it is found that it is not matching then the banker can dishonor the cheque.

OVERWRITING – Cheque overwriting is not allowed. If it is found that overwriting is done and the banker is suspicious about the drawer that the cheque which is overwritten then the banker may dishonor the cheque.

ACCOUNT CLOSED – drawer should not give the cheque of his bank account which is already closed. Drawer can be sued for cheating also and for dishonour of cheque.  

ACCOUNT HOLDER IS INSANE – If the account holder is insane ,the banker will not pay the cheque after coming to know that the account holder is insane and it is considered that the cheque is dishonoured.

DAMAGED CHEQUE – Bank will not accept the damaged cheque so before giving cheque to the other party make sure cheque is not damaged otherwise it will get dishonor.

AMOUNT IS NOT MATCHING WITH FIGURE AND WORDS – Before presenting the cheque we should check whether it has written correct amount or not if there are differences in figure and words of amount then that cheque will get dishonor.

ACCOUNT NUMBER MISMATCH – If the account number is not correct then automatically cheque will get dishonor as it is not clear from whose account amount has to give to the payee.

SEAL OF THE COMPANY IS NOT ON THE CHEQUE – When the cheque is from the company it is required that the cheque must have a seal on it which is of its company with the name of company otherwise cheque will get unpaid.

 

PROVISION FOR DISHONOUR OF CHEQUE

The Negotiable Instrument Act, 1881 is applicable for the cases of dishonor of cheque. This act has been amended many times since 1881. As per Section 138 of the Act, the dishonor of cheque is a criminal offence and is punishable by imprisonment up to two years or penalty or with both.

INGREDIENTS

A person must have drawn a cheque for payment of money to another for the discharge of any debt or liability;

That cheque has been presented to the bank within a period of three months;

That cheque is returned by the bank unpaid, either because of insufficient funds or that it exceeds the amount arranged to be paid from that account by the bank;

Drawer fails to make payment to the payee within 15 days of the receipt of the notice.

JURISDICTION

Supreme court stated that as per section 142(2)(a) of the Negotiable Instrument Act, the court within whose jurisdiction  the bank of the payee where payee holds account in that branch is situated, will have jurisdiction to try the offence, if the cheque is delivered for collection through an account.

{Himalaya Self Farming Group Vs. Goyal Feed Suppliers}

 

Consequences of dishonor of cheque

1. Drawer will get a punishment of two years or fine which is twice the amount of the cheque or both.

2. Drawer will be called a “defaulter”.

3. Bank will close an account of the drawer.

4. Drawers’ reputation will get damaged in society.

5. Drawer has to bear financial loss which may be double the amount of the cheque or more than that.

6. Business will get affected.

 

 

HIMALAYA SELF FARMING GROUP Vs. GOYAL FEED SUPPLIERS

 

In this case it is stated that it cannot be grounds to transfer the case from Agra to Siliguri, that respondent have his office in Siliguri and filing complaint to Agra only to harass petitioner, when respondent maintains account in the bank where it is situated in Agra.

It also cannot be a ground to transfer the case from Agra to Siliguri that the petitioner gets the low quality of food from respondent for which he has made a complaint in Siliguri.

Supreme Court Stated that there is a provision in Negotiable Instrument Act, 1881 under section 142(2)(a) the court within whose jurisdiction the branch of the bank where the payee maintains the account is situated, will have jurisdiction to try the offence, if the cheque is delivered for challan through an account. Therefore, all the grounds on which the petitioner seek transfer, are unsustainable. Transfer petition is therefore dismissed.

  

SRIPATI SINGH Vs. THE STATE OF JHARKHAND AND ANR

 

The court held that a cheque issued by way of security, if dishonoured, would attract the provision of the Act, if the same is issued in consequence of a legally enforceable debt, which has become recoverable at the time of its presentation.

 

CONCLUSION

Cases of dishonor of cheque have been increasing tremendously because of which the burden of disposing of cases increased, Supreme court has given guidelines to the high courts to dispose of dishonor of cases speedily.

The Negotiable Instrument Act 1881 has been amended in 2017. The Negotiable Instrument (Amendment Bill 2017) inserts a provision that a court trying dishonour of cheque cases directs the complainant to deposit Interim compensation which is 20% of the cheque amount.